With tax season approaching later this year in July rather than April, you may wonder whether your personal injury settlement is considered taxable income. Read on to learn the answer.
The General Rule
Under federal and state law, as a general rule, the majority of personal injury settlements are untaxable. It makes no difference whether your case was settled prior to or following the filing of a personal injury suit in court. It also makes no difference whether you went to trial.
The federal government (Internal Revenue Service aka IRS) may not tax you on the settlement or verdict revenue in the majority of cases. Additionally, the state government may not tax you on those earnings either.
Federal tax law discludes losses obtained by the means of personal physical injuries or physical sickness from your gross income.
The compensatory damages you receive in the personal injury settlement are untaxable—elements such as:
- Lost wages
- Medical expenses
- Emotional distress
- Pain and suffering
- Loss of consortium
- Attorney fees
Compensatory damages are the portions of the award that are designed to make you “whole” again. These damages are awarded in order to make up for what you’ve lost due to someone else’s negligence.
If you’re awarded punitive damages for your case, those damages will be taxed. Punitive damages are monies awarded to you in order to punish the person or entity that harmed you. In addition, these damages are designed to dissuade others from acting in similar manners in the future that put people in danger.
Interest On The Judgment
West Virginia has a court rule that adds interest to the verdict for the duration of time the case goes unsettled. That means you should receive interest on the verdict from the date you file the lawsuit until the date you receive payment. This interest you receive is considered taxable income.
If you’ve been injured due to someone else’s negligence, our attorneys at Persinger & Persinger, L.C. are here to help. We have helped many other injured victims obtain justice, and we can help you, too. Don’t hesitate to contact our office with your case right away.
Contact us today at (304) 346-9333 to discuss the details of your case with one of our experienced Charleston attorneys.